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External costs from major accidents in non-nuclear fuel chains

External costs from major accidents in non-nuclear fuel chains. Input to D5.2 Methodology and Evaluation of external costs… U. of Bath, May 2003, PSI. Monetary valuation of accident impacts. Impacts: Energy chain-specific; small or large accidents Acute Mortality Energy chain specific;

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External costs from major accidents in non-nuclear fuel chains

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  1. External costs from major accidents in non-nuclear fuel chains Input to D5.2 Methodology and Evaluation of external costs… U. of Bath, May 2003, PSI

  2. Monetary valuation of accident impacts • Impacts: Energy chain-specific; small or large accidents • Acute Mortality Energy chain specific; • Morbidity • Physical injury in accident • Mental trauma - from physical injury, evacuation • Evacuation (costs of resettlement/accommodation) • Clean-up/repair costs and WTP for recreational/ecosystem losses - oil spills • Ban on consumption of food • Land contamination • Economic losses

  3. Welfare components of impacts • Of health (and some other) impacts • Resource costs e.g. medical costs (1) • Opportunity costs e.g. lost productivity (2) • Dis-utility e.g. pain/suffering, inconvenience (3) • Nb. WTP Measures are (3) + (2) and some of (1), depending on how much the individual pays

  4. Mortality/Morbidity • Mortality: based on road accident valuation • ExternE: 3.14M Euro/VPF • Carthy: 1M Euro/VPF • Morbidity: literature differentiates between severe and minor injuries; we require single value since cannot categorise type of injury. • recommend to use values as extremes of range and take mid-point: Euro 207,106 (2000 prices) • Should we adjust these values?

  5. Mortality/Morbidity • What degree of internalisation can we assume in the treatment of health effects? • Method: • literature review of wage-risk valuation studies (ex ante) • evidence from compensation practice

  6. Mortality/Morbidity - occupational • Mortality risks to employees - are they internalised? • Ideally, would need to know: • VSL if fully internalised • actual VSL, derived from wage-risk studies • Practically, can examine: • wage risk studies to see if there are proxies that can be used • e.g. compare VSLs from unionised and non-unionised employees

  7. Mortality/Morbidity - occupational • But, wage risk studies hard to interpret in this way • Role of unions: UK - some studies found union affiliation had an insignificant impact on risk premium, others found higher union risk premiums: Mean difference approx 20% • internalisation increases with education level of labour force (Dorman, 1998) but difficult to use as robust proxy • Other factors also increase uncertainty of estimates • Omitted variables bias • Endogeneity: the level of risk that workers will be willing to undertake is negatively related to their wealth, assuming that safety is a normal good

  8. Mortality/Morbidity - occupational • On average we conclude that • In industrialized economies of the EU occupational risk really is substantially internalised. • In the less effective economies of Eastern Europe there is still some internalisation but this is less.

  9. Summary of European Labour Market Studies of VSL

  10. Mortality/Morbidity - public • Standard choice models suggests individuals, depending on aversion to risk, maximise utility by choosing between two alternatives:buying insurance or mitigation measures • But, empirical literature does not support this model. Why? • Misperception of risks • Low probability events perceived as impossible events • Role of emotions e.g. fear & dread • Lack of clarity on probabilities of losses related to given risks • additionally, pain/suffering likely to be significant

  11. Mortality/Morbidity • Ex post evidence • Liability insurers pay: • mixture of lump sum and annuities related to wage losses and medical costs for injuries (though in France: indexation borne by state) • mixture of lump sum and annuities related to wage losses to family for fatalities • Coverage for accidents varies over countries & industries: 70-80% average of material losses are paid. Adjustment: insurance premium + 30-40% • if take conservative estimate of pain/suffering to be considered. Adjustment: material cost + 50% •  insurance premium is 50% of full internalisation

  12. Mortality/Morbidity - adjustments • Scale of accident • hypothesis that risk of large scale accidents valued more highly • evidence (J-L & Loomes) comparing road accidents with large-scale accidents from proximity to airport does not support hypothesis • (But spending on e.g. nuclear protection does support it). • Size of risk • hypothesis - probability range smaller than in road transport context so if non-linearity in risk values, different VPF • no evidence to support this

  13. Mortality/Morbidity - adjustments • Age of victim • Accident-derived VSL appropriate - assume average life expectancy • Weighting for Extra-EU impacts (ExternE consensus) • EU impacts plus impacts in other regions with globally averaged values (‘world average’); • EU impacts plus impacts in other regions with EU values (‘EU values’).

  14. Recommendations • Estimates for degree of internalisation (generic) • Occupational: 80% (70% - 100%) • Public: 50% (30% - 70%) • No adjustments for scale & size of risk

  15. Evacuation/resettlement • Internalised to some degree through insurance • Evidence on resource costs - 2 US Studies • Euro 108 - 180/day/household • Evidence on opportunity costs UK CBI • direct costs of absenteeism: Euro 88 – 230per person day • Dis-utility?

  16. Oil Spills • Some attention has been given to the different welfare components following high profile spills

  17. Sea Empress - Atlantic,off S.Wales, 1996

  18. Oil Spills in Caspian Sea • Estimates of damage costs average at Euro 2600 per ton. • Typical spills around 10 - 30,000 tons

  19. Exxon Valdes, Gulf of Alaska, 1989

  20. Oil Spills - conclusions • Unit values? • Exxon Valdes: Euro 26,333/tonne crude oil • CV study post accident: WTP Euro 31/household • Sea Empress: Euro 2368/tonne crude oil • Transfer of unit values for different welfare components possible though constrained by context-specific factors

  21. Other impacts • Ban on consumption of food • Theory - trace through market impacts • No evidence from fuel chain though in future could use simulations • Indicative evidence: Euro 250m to UK Beef producers for BSE-related losses • Land Contamination • Theory - can be estimated by using differences in land values • Evidence may exist from historical clean-ups but site-specific • Economic losses • Theory - change in stock market value of businesses • Historical evidence exists e.g. for oil spills but site-specific

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